AtriCure tentatively settles Department of Justice probe, looks to future with AtriClip

AtriCure Inc. said today that it has tentatively settled a whistle-blower lawsuit with the Department of Justice so that it can concentrate on newly launched technologies, as well as on clinical trials to bring more new products to market. Investors pushed up AtriCure stock by 18 percent in early afternoon trading.

WEST CHESTER, Ohio — AtriCure Inc. said today that it has tentatively settled a whistle-blower lawsuit with the Department of Justice so that it can concentrate on newly launched technologies, as well as on clinical trials to bring more new products to market.

The company that develops and makes surgical cardiac ablation systems — systems that scar the heart to interrupt bad electrical signals — has agreed to pay $3.8 million to settle the “qui tam” lawsuit filed in Texas. The suit accuses AtriCure of  marketing its ablation systems for the treatment of atrial fibrillation, a use for which the systems are not approved by the U.S. Food and Drug Administration.

Atrial fibrillation is an abnormal, rapid heart rhythm that can cause fainting in a mild case, but in the extreme, can lead to stroke or heart failure.

The agreement includes AtriCure’s assertions that the company and its employees have not done anything wrong or illegal. Although AtriCure leaders believe they have good defenses against the lawsuit, “litigation could potentially last years,” David Drachman, the company’s president and chief executive, told securities analysts during a Wednesday morning conference call about the company’s third-quarter earnings. “Even if we litigated and prevail, the costs would have likely exceeded the settlement amount.

“Also, we are an emerging, growth-oriented company with a lean management structure,” Drachman said. “The discovery and litigation process would have distracted management from focusing on profitability and growth. We believe the contemplated resolution will allow us to execute our business strategy, maintain our credit facility and move toward profitability without materially impeding our current capital or ongoing revenue opportunities.”

As for AtriCure’s earnings, the company lost $4.7 million, or 32 cents a diluted share in the quarter ended Sept. 30. That compared with a loss of $1.8 million, or 12 cents a diluted share, in the year-ago quarter. The recent quarter includes a one-time reserve of $3.8 million to pay the Department of Justice settlement. Omitting one-time and non-cash items, such as depreciation, AtriCure said its adjusted operating loss was about $700,000 for the quarter, which was its smallest operating loss since becoming a public company and a 63-percent improvement from a year ago.

The company’s revenue fell 10 percent to $13.3 million from a year ago. For the nine-month period, AtriCure lost $14.1 million, or 98 cents a diluted share, compared with $7 million, or 49 cents a diluted share, in the year-ago period. Revenue fell 6 percent to $40.7 million from a year ago.

Drachman said his company’s top three strategic goals are to attain profitability, get FDA approval to market its technologies for the treatment of atrial fibrillation and expand market share and leadership through new products. Since its June launch, AtriCure’s Cryo1 cryo-ablation probe has been sold to “60 U.S. accounts,” Drachman told analysts. “In addition to its second-quarter U.S. launch, Cryo1 was released in Europe during the third quarter. We are highly encouraged by initial sales and physician responses to our Cryo1 system.

“We believe that our Cryo1 system is driving new growth opportunities, which will incrementally increase during the fourth quarter and throughout 2010,” he said. “Importantly, AtriCure has the widest range of surgical cardiac ablation products and technologies, and is the only company marketing the series of radio frequency and cryothermia ablation products.”

The recent European approval of AtriClip — formally named the AtriClip Gillinov-Cosgrove Left Atrial Appendage Exclusion System — a device that protects against blood clots during certain heart procedures, “represents a major product and clinical milestone,” Drachman said.

The device is named after Cleveland Clinic Chief Executive Officer Dr. Toby Cosgrove and Clinic Dr. A. Marc Gillinov, who helped pioneer the practice of using a clip to block a thumb-sized pouch on top of the left side of the heart to cut down on blood clots that could lead to strokes for patients who have atrial fibrillation. Last month, the Clinic ranked such left atrial appendage-blocking devices as No. 9 in its list of Top 10 Medical Innovations for 2010.

AtriCure shares were up 77 cents, or 18 percent, to $5.05 in early afternoon trading on the NASDAQ Stock Market.